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Key Points

The Reserve Bank of India is expected to cut policy rates by 25 basis points each in its upcoming October and December meetings. This forecast comes from Morgan Stanley, which notes that inflation has been tracking below the RBI's 4% target for seven consecutive months. The brokerage firm projects that headline CPI inflation will average just 2.4% in FY26, creating significant room for monetary easing. The benign inflation trend is being driven by low food prices, recent GST rate cuts, and a lack of input price pressures.

Key Points: RBI Expected to Cut Rates 25 bps in October and December MPC

  • Morgan Stanley projects two 25 bps RBI rate cuts in Oct and Dec MPC meetings
  • Headline CPI inflation expected to average 2.4% in FY26, undershooting target
  • Disinflation driven by low food prices, GST cuts, and lack of input cost pressures
  • Core inflation remains range-bound, indicating sustained moderation in underlying pressures
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RBI likely to cut rates by 25 bps each in Oct, Dec MPC; CPI may avg at 2.4% in FY26: Morgan Stanley

Morgan Stanley forecasts RBI rate cuts in Oct & Dec, with CPI inflation averaging just 2.4% in FY26, well below the central bank's 4% target.

"we expect headline CPI to average at 2.4 per cent YoY in F26, allowing the RBI to cut rates by 25bps each in Oct & Dec - Morgan Stanley Report"

New Delhi, September 16

The Reserve Bank of India (RBI) is expected to lower policy rates by 25 basis points each in the upcoming Monetary Policy Committee (MPC) meetings in October and December, taking the terminal policy rate to 5 per cent, according to a report by Morgan Stanley.

The global brokerage firm noted that the central bank now has room for monetary easing as inflation continues to undershoot the target.

The report projects headline consumer price index (CPI) inflation to average at 2.4 per cent year-on-year in FY26, significantly below RBI's inflation target of 4 per cent.

It stated "we expect headline CPI to average at 2.4 per cent YoY in F26, allowing the RBI to cut rates by 25bps each in Oct & Dec".

The report also added that the benign trend in inflation is expected to be perpetuated further by disinflationary impulses from low food prices, recent cuts in Goods and Services Tax (GST) rates, and lack of input price pressures.

Headline CPI inflation in the country has been tracking below RBI's 4 per cent target for the last seven months, partly due to food price disinflation. Core inflation has also remained range bound, tracking at 4.2 per cent, while core-core inflation has stayed at 3.1 per cent and has been below 4 per cent for the last 22 months, indicating sustained moderation in underlying inflationary pressures.

Taking into account the downside to CPI, along with the weaker trend in nominal GDP growth even as real GDP growth has held up, the expects RBI to ease rates in October and December.

The report also pointed out that risks of a deeper rate easing cycle could emerge if the weak trend in inflation persists for longer. Sustained softness in price pressures would create further elbow room for the central bank to deliver additional policy easing.

At the same time, the report highlighted concerns around nominal growth, which is expected to remain subdued. Nominal GDP growth is projected at 8.3 per cent in FY26, reflecting weaker price trends.

While lower indirect taxes are likely to support domestic demand from a low base in the second half of FY26, the report flagged the risks of a drag from external demand.

This weakness, it said, could be accentuated by adverse tariffs and the outcome of ongoing trade negotiations with the United States.

- ANI

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Reader Comments

P
Priya S
While lower rates are welcome, I'm concerned about the nominal GDP growth projection. 8.3% is quite low and might affect job creation and salary growth. The RBI needs to balance growth and inflation carefully.
A
Aditya G
Great move by RBI! Lower inflation means more purchasing power for common people. The GST cuts and controlled food prices are really helping middle-class families. 👍
S
Sarah B
As an investor, I'm watching how this affects the bond markets. Rate cuts usually boost bond prices, but the external demand risks mentioned are concerning. Need to see how trade negotiations with US play out.
M
Meera T
Hope this translates to better returns for savers too. FD rates have been falling consistently. While borrowers benefit, senior citizens depending on interest income are struggling. RBI should consider this aspect as well.
K
Karthik V
Excellent monetary management by RBI! Maintaining inflation below target for 7 months is no small achievement. This will boost consumer confidence and spending during the festive season. 🪔

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